5 Companies Likely to Bid for Onyx Pharma

SOUTH SAN FRANCISCO ( TheStreet) -- Onyx Pharmaceuticals ( ONXX) has rejected Amgen's ( AMGN) takeout offer of $120 per share in cash and said it will seek additional bidders. I believe there are five key potential suitors for Onyx, each with a unique motivation to gain control of the company's most important asset -- the blood cancer drug Kyprolis.

Here, then, is a rundown of the five companies I believe will seek to acquire Onyx in the coming weeks:

1. Amgen

While Amgen has oncology products, a bid for Onyx is less about synergies and more about seeking growth. Right now, Amgen's only late-stage blood cancer product is blinatumamab, which is in phase II studies for acute lymphoblastic leukemia. Acquiring Onyx would make Amgen an instant and significant player in the blood cancer treatment market, as well as further expand its existing footprint in the solid tumor market.

Amgen is also the slowest-growing large-cap biotech company, which is especially problematic as peer companies Biogen Idec ( BIIB), Celgene ( CELG), and Gilead Sciences ( GILD) are all growing much faster or about to enter high-growth periods. In the eyes of many investors, Amgen isn't even considered a biotech company any longer, meaning it isn't rewarded with the growth multiple of its competitors. An acquisition of Onyx might change that perception for the better.

2. Bayer

Bayer is already partnered with Onyx. The two companies co-market the liver and kidney cancer drug Nexavar and the colon cancer drug Stivarga. This gives Bayer a significant advantage over other potential suitors because it stands to gain the most from potential cost-saving synergies. It also means Bayer might be able to offer a higher price for Onyx and keep the dilutive effect on earnings to a minimum. Of course, the "Bayer is going to buy Onyx" speculation has been chatted up by Wall Street investors for years without a deal ever being coming to fruition. One has to wonder of Bayer is really that motivated to participate in the auction process for Onyx.

3. Celgene

Celgene has the most complementary group of cancer-drug assets of all the potential Onyx suitors. Celgene already has a significant presence in blood cancer with the currently approved drugs Thalomid, Revlimid and Pomalyst. In addition, Celgene has shown a recent interest in acquiring new blood-cancer drugs with differing mechanisms of action like the purchase of Avila Therapeutics for its BTK inhibitor and the recent collaboration with Morphosys to gain access to a monoclonal antibody that targets CD38.

What Celgene is missing, however, is a proteasome inhibitor, which is exactly what by Onyx and taking control of Kyprolis offers. A Celgene purchase of Onyx would just about make the combined companies a one-stop shop for blood cancer drugs.

4. Takeda

While Celgene could seek to buy Onyx to bolster its blood-cancer franchise, Takeda might take a run at Onyx in order to defend its most important blood cancer drug.

Takeda markets Velcade, which is currently the highest-selling proteasome inhibitor used to treat multiple myeloma patients. Onyx's Kyprolis most directly competes with Velcade, so an acquisition of Onxy would both defend Takeda's proteasome inhibitor franchise and essentially ensure its dominance in this class of drugs.

If Takeda isn't interested in getting into a bidding war for Onyx, perhaps Johnson & Johnson ( JNJ) will since it co-markets Velcade.

5. Gilead Sciences

Gilead might be considered a dark-horse suitor for Onyx but I would take the company's chances seriously. Gilead is still considered to be predominantly an antiviral drug company (and rightly so) but it has been building out an impressive blood cancer drug business.

At the most recent ASCO annual meeting, Gilead impressed with new data on its PI3K inhibitor idelalisib. A Gilead purchase of Onyx would not only add to its burgeoning presence in blood cancer but also give the company an instant commercial presence in the broader oncology market with Nexavar, Stivarga and the lucrative royalty stream from Pfizer's breast experimental cancer drug palbociclib, if the drug is approved.

Other drug companies may come knocking on Onyx's door but I see these five suitors as the most likely to make a deal stick. Of course, Onyx may ultimately decide that the best option is to remain independent. Another possibility, albeit a long shot: Onyx decides to remain independent and acquire another company.

Why would Onxy be a buyer instead of a seller? The takeover speculation is obviously going to put a strong bid under Onyx's share price. This increases the attractiveness of using its stock to make purchases.

I believe the most likely outcome of this process will be the acquisiton of Onyx but there's still a chance Onxy decides to go it alone and become a buyer. In either case, this may very well be the spark that was needed to reinvigorate the moribund biotech M&A market.

Sobek is long Celgene.

David Sobek has been writing on biotech for a number of years through various outlets with a general focus on small cap oncology and antibiotics companies. He received his PhD in political science from Pennsylvnia State Univeristy in 2003 and a BA in international relations from The College of William and Mary in 1997. He is a contributing partner at Chimera Research Group, an independent biotech investing research service.

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